Forget about the K-shaped economy, says market expert Ed Yardeni—what’s really happening is that baby boomers are accumulating wealth, while Gen Z faces challenges in growing theirs

Rethinking the Modern Economy: From K-Shaped to Generation-Based

Recent discussions about the state of the U.S. economy have popularized the term "K-shaped economy" to highlight the starkly different experiences of Americans in the face of inflation. While those with significant assets have benefited, many others are grappling with higher costs for essentials like food and energy, making it increasingly difficult to manage their finances.

This concept helps explain why consumer spending hasn't yet fallen to levels typically seen during a recession. Households with lower incomes are tightening their budgets, but affluent individuals continue to spend, buoyed by gains in stocks and real estate. According to Moody’s Analytics, the wealthiest 10% accounted for almost half of all consumer expenditures last year.

However, both economists and Federal Reserve Chair Jerome Powell have cautioned that this pattern is not sustainable in the long term. If the wealthy reduce their spending, it could deepen wealth disparities or even trigger a broader economic slowdown.

Yet, some experts suggest that high levels of spending among the affluent may persist. While a downturn in the stock market could prompt cutbacks, certain economists believe that spending will remain strong, especially among demographic groups known for their predictable consumption patterns. For these groups, the outlook may remain positive.

A Generational Lens on Economic Trends

Ed Yardeni, president of Yardeni Research, recently proposed that analyzing the economy by generation, rather than by the K-shaped model, offers more insight. In a recent blog post, he introduced the idea of a "gen-shaped" economy to better capture current spending dynamics.

Yardeni points out that baby boomers—numbering 76 million—are currently the biggest spenders, having benefited the most from rising asset values in recent years. In contrast, Gen Z and millennials are newer to the workforce and face challenges such as high youth unemployment, limited entry-level opportunities, and increasing student loan and credit card debt. These factors, Yardeni explains, contribute to slower spending growth among younger Americans, who represent the lower end of the K-shaped divide.

Although more baby boomers are retiring and leaving behind their paychecks, they remain the wealthiest generation ever, with a collective net worth estimated at $85.4 trillion. While younger generations struggle to purchase homes or invest in the stock market, boomers continue to hold the majority of assets. Yardeni expects that, thanks to their substantial savings, boomers will maintain robust spending well into retirement.

The Future of Wealth: Inheritance and the Great Transfer

For Gen Z and millennials, achieving similar levels of wealth may only be possible later in their careers. In the meantime, many will likely rely on financial assistance from their affluent parents, according to Yardeni.

Eventually, younger generations are set to inherit a significant portion of the wealth accumulated by baby boomers. This massive transfer of assets, often called the "Great Wealth Transfer," could reach $124 trillion, with nearly $300 billion already passed down last year. However, this process will unfold gradually, with some estimates suggesting that Gen Z and millennials will continue to receive inheritances through 2048.

It’s important to note that not all of this wealth will go directly to children; some will be distributed among widows and charities. Many young Americans may still find it difficult to compete in today’s economy, especially when it comes to affording a home, even with parental support.

At present, baby boomers’ financial dominance shows little sign of waning. In 2023, they controlled over half of all corporate equities and mutual fund shares.

“Baby boomers can’t possibly spend all this, so some of this is going to flow down,” Yardeni remarked in a recent video discussing the generational shape of the economy.

This article was first published on Fortune.com.